Growing Story: US Economy Almost Collapsed, Sep 2008

[StlSluggers]

This is rather sobering information coming out of the House:

I was there when the secretary and the chairman of the Federal Reserve came those days and talked to members of Congress about what was going on... Here's the facts. We don't even talk about these things.

On Thursday, at about 11 o'clock in the morning, the Federal Reserve noticed a tremendous drawdown of money market accounts in the United States to a tune of $550 billion being drawn out in a matter of an hour or two.

The Treasury opened up its window to help. They pumped $105 billion into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks.

They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn't be further panic and there. And that's what actually happened.

If they had not done that their estimation was that by two o'clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.

Now we talked at that time about what would have happened if that happened. It would have been the end of our economic system and our political system as we know it.

This is a link to the video* of the Representative making these statements on CSPAN.

Pretty sobering stuff...

*I'm assuming that link works still. YouTube is blocked at my work.

[Art Vandelay]

If they had not done that their estimation was that by two o'clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.

I'm certainly far from any kind of expert on the economy, but I simply don't buy this. It smacks of hyperbole. Not that total collapse of the world economy would have been out of the question, I just don't buy that it would have happened in a single day, or that the US economy would have entirely collapsed in a couple of hours.

[Curtis Pride]

Anyone who is stupid enough to take their money out of their savings accounts because they are afraid of the bank going out of business deserves to have their money taken and be forcibly sterilized.

The government has been providing FDIC insurance on all banks for decades. People stupid enough to rush to the bank to take their money out, certainly weren't smart enough to amass the wealth to have over the $150k FDIC insurance at the time.

[stevethumb]

If they had not done that their estimation was that by two o'clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.

I'm certainly far from any kind of expert on the economy, but I simply don't buy this. It smacks of hyperbole. Not that total collapse of the world economy would have been out of the question, I just don't buy that it would have happened in a single day, or that the US economy would have entirely collapsed in a couple of hours.

i agree...there is no way $5.5 trillion was going to be "cashed out"..that's $1.8 million each for 3 million people (i think)

[Dusty Baker]

He sorta has the Ted Stevens "SERIES OF TUBES" things going on, maybe a bit of exaggeration, but this is still pretty much terrifying.

[Dusty Baker]

Also, probably not the best pep talk to give the American people during these trying times.

[JTWood]

If they had not done that their estimation was that by two o'clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.

I'm certainly far from any kind of expert on the economy, but I simply don't buy this. It smacks of hyperbole. Not that total collapse of the world economy would have been out of the question, I just don't buy that it would have happened in a single day, or that the US economy would have entirely collapsed in a couple of hours.

i agree...there is no way $5.5 trillion was going to be "cashed out"..that's $1.8 million each for 3 million people (i think)

These were institutional withdrawals, not individual.

[JTWood]

I have tried reading more on this, and from what I've found, some of this Rep's facts are a bit off (dates, mostly). The $550B number is legit, though. No list of who made the withdrawals have been released (that I've found), but there has been rampant speculation as to who made them. Regardless, it is known the withdrawals were made by very large institutions.

[Neato Torpedo]

Also, probably not the best pep talk to give the American people during these trying times.

Actually, it could be taken as "the government knows what it's doing, it's not running completely blind so despite the party-line bickering there are good things coming out of Washington".

[bleach168]

Probably embellished a bit, but we were a lot closer to collapse than most people realize. The fall of Lehman bros caused unrepairable damage throughout the financial sector. Had more major financial institutions been allowed to fail, we would be deep in a depression right now.